EXHIBIT 4.4
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AGREEMENT FOR PURCHASE OF STOCK
Agreement for Purchase of Stock (this "Agreement"), effective as of October
1, 1997 by and among Sylvan Learning Systems, Inc., a Maryland corporation (the
"Purchaser") and Xxxxxx Xxxx, Xxxxxxxx Xxxxxx, Xxxxxxx Xxxxx, Xxxxxx X. Xxxx,
Xxxxxxxxx Xxxxxx, Xxxxxx X. Xxxxxxxx, Xxx X. Xxxxxxx, and Xxxxxxxx XxXxxxx (the
"Stockholders").
WITNESSETH:
The Stockholders, in aggregate, own seventy-five percent (75.0%) of all of
the issued and outstanding capital stock of PMZ, Inc., a California corporation
(the "Company"). The remaining 25% is owned by Purchaser. The Purchaser and
Stockholders wish to enter into an agreement for the acquisition of
Stockholders' interest and stock in the Company, and Purchaser makes such
acquisition as part of its plan and effort to acquire the Company and all shares
outstanding therein in a transaction or series of transactions qualifying as a
tax-free reorganization under Section 368(a)(1)(A) of the Code.
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, the Purchaser
and the Stockholders hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Stockholders as follows:
1.1 Organization and Standing. The Purchaser is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Maryland and has the corporate power to carry on its business as it is now being
conducted and to own or hold under lease the properties and assets it now owns
or holds under lease. The Purchaser has at all times in the past operated and
used its assets in material compliance with, and currently is not in violation
of, and has obtained all material licenses and permits required by, any law,
rule or regulation.
1.2 Financial Statements. The Purchaser has delivered to the
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Stockholders copies of the Purchaser's audited consolidated financial statements
for the fiscal years ended December 31, 1995 and 1996 and unaudited consooidated
financial statements for the six month period ending June 30, 1997. These
financial statements are true and complete in all material respects, have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently followed throughout the periods covered by such statements (except
as may be stated in the explanatory notes to such statements), and present
fairly the consolidated financial position and results of operations of the
Purchaser at the dates of such statements and for the periods covered thereby.
The Purchaser also has delivered to the Stockholders copies of its Annual Report
on Form 10-K for the year ended December 31, 1996, its proxy statement dated
June 7, 1997, and all other reports or documents required to be filed with the
Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
filing of such Annual Report on Form 10-K and prior to the date of this
Agreement.
1.3 No Conflict With Other Documents. Neither the execution and
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delivery of this Agreement nor the carrying out of the transactions contemplated
hereby will result in any violation, termination or modification of, or be in
conflict with, the Purchaser's Charter or By-Laws, or, any terms of any
contract, instrument or other agreement to which the Purchaser is a party or by
which it or any of its properties is bound or affected, or any law, rule,
regulation, license, permit, judgment, decree or order applicable to the
Purchaser or by which any of its properties or assets are bound or affected, or
result in any breach of or constitute a default (or with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or
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cancellation, or result in the creation of any lien, charge or encumbrance upon
any of its properties or assets, except where such event or occurrence would
not, singly or in the aggregate, have a material adverse on the Purchaser.
1.4 Brokers and Advisors. The Purchaser has taken no action which
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would give rise to a valid claim against any party hereto for a brokerage
commission, finder's fee, counseling or advisory fee, or like payment.
1.5 Validity of Common Stock. The shares of Purchaser's Common Stock
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to be issued and delivered by the Purchaser in connection with the acquisition
of Stockholders's shares in the Company have been duly authorized for issuance
and will, when issued and delivered as provided in this Agreement, be duly and
validly issued, fully paid and non-assessable.
1.6 Registration Statement on Form S-3. As of the date hereof, the
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Purchaser is aware of no events, actions or conditions which would prevent the
Purchaser from being able to comply with the provisions of Section 11.1(a) of
this Agreement, and will use its best efforts to continue to be eligible to
comply with the provisions of Section 11.1(a).
1.7 Authority. The execution, delivery and performance of this
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Agreement by the Purchaser have been duly authorized by its Board of Directors,
and this Agreement is a valid, legally binding and enforceable obligation of the
Purchaser.
1.8 Tax-Free Reorganization. The Purchaser is not aware of any
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events or conditions relating to the Purchaser which would preclude the
Stockholders from treating the share exchange as a tax-free reorganization
under Section 368(a)(1)(A) of the Code.
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of the
Stockholders hereby severally, but not jointly, represent and warrant to the
Purchaser as follows:
2.1 Authorized and Issued Shares. The Company's entire authorized
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capital stock consists of one million (1,000,000) shares of Common Stock, $1.00
par value per share (the "Company Common Stock"), of which 469,995 shares are
issued and outstanding. No shares of Company Common Stock are held in the
Company's treasury and no shares are reserved for issuance. All outstanding
shares of Company Common Stock have been duly authorized and are validly issued
and are fully paid and non-assessable and are owned by the Stockholders and the
Purchaser. The Company is not a party to or bound by any options, calls,
contracts, preemptive rights or commitments of any character relating to any
issued or unissued capital stock, or any other equity security issued or to be
issued by the Company.
2.2 Ownership of Company Common Stock. As shown on Schedule 1.2 to
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this Agreement, each Stockholder has good and marketable title to their
respective portion of the 352,495 issued and outstanding shares of Company
Common Stock free and clear of any pledges, liens, restrictions, claims or
encumbrances of any kind. The said 352,495 shares represent seventy-five
percent (75%) of the 469,995 total shares of the Company that are issued and
outstanding as of the effective date of this Agreement. Such Stockholders are
not a party to or bound by any options, calls, contracts, or commitments of any
character relating to any issued or unissued stock or any other equity security
issued or to be issued by the Company.
2.3 Organization. The Company is a corporation duly organized,
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validly existing and in good standing under the laws of the State of California,
and has the corporate power and authority to carry on its business as it is now
being conducted and to own or hold under lease the properties or assets it now
owns or holds under lease and to perform the actions contemplated hereby.
Complete and accurate copies of the current Charter, By-Laws, minute books and
stock transfer books of the Company have been provided to the Purchaser, and
such copies are complete and correct and in full force and effect. The Company
does not own or have any direct or indirect interest in any other corporation,
firm, partnership, joint venture enterprise or other business entity.
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2.4 Transactions with Affiliates. The Company is not a party to any
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contract, agreement or other arrangement with any current or former officer,
director or Stockholder or any affiliate of any such persons.
2.5 Financial Statements. The Stockholders have caused the Company
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to provide to the Purchaser the reviewed financial statements for the fiscal
year of the Company ended on December 31, 1996 and audited financial statements
for the seven month period ending July 31, 1997, which have been reviewed
audited by Xxxx Xxxxxxx, CPA (collectively, and together with all audited
financial statements to be delivered after the execution of this Agreement, the
"Company Financial Statements"). The Company Financial Statements are complete
and correct, have been prepared on a consistent basis throughout the periods
covered thereby and present fairly and accurately the financial position and
results of operations of the Company as of and for the periods indicated. There
are no material liabilities or obligations of the Company, whether contingent or
absolute, as of the dates of such statements, including liability for taxes of
any type, which in accordance with GAAP consistently applied should have been
shown or provided for in the Company Financial Statements and are not so shown
or provided for. Since July 31, 1997, there has been no material adverse change
in the condition (financial or otherwise), assets, liabilities, earnings, net
worth, financial position, business, operations, properties or prospects of the
Company. The Company's accounts receivable arose, and all accounts receivable
that will be outstanding as of the Closing Date shall have arisen, from bona
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fide transactions in the ordinary course of business and will be collected by
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the Company in full, less applicable reserves shown in the Company Financial
Statements, in the ordinary course of business within ninety days of the Closing
Date, and there are no offsets or claims related to such accounts receivable.
2.6 Taxes. The Company and the Stockholders have properly prepared
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and filed all federal, state and other tax returns required to be filed in
connection with the operations of the Company. True and complete copies of all
federal and state income tax returns for the Company for each of the years
ended December 31, 1994 through December 31, 1996 have been delivered or made
available to the Purchaser on or prior to the date hereof and copies of other
returns will be made available upon request. Except as set forth on Section 2.6
of the Disclosure Schedule or in the Company Financial Statements, neither the
Company nor the Stockholders has any liability for any federal, state, county,
local or other taxes whatsoever that arose or otherwise were incurred on or
before the date of the balance sheet for 1996 included in the Company Financial
Statements. No proposed taxes, additions to tax, interest or penalties have
been asserted or are pending against the Company or the Stockholders with
respect to periods ending on or before Closing, and no such matters are under
discussion with the applicable authorities. There are no agreements, waivers,
or other arrangements providing for extensions of time with respect to the
assessment or collection of any unpaid tax against the Company or the
Stockholders. The Company and the Stockholders have withheld or otherwise
collected all taxes or amounts it or he was required to withhold or collect
under any applicable federal, state or local law, including, without limitation,
any amounts required to be withheld or collected with respect to employee state
and federal income tax withholding, social security, unemployment compensation,
sales or use taxes or workmen's compensation, and all such amounts have been
timely remitted to the proper authorities.
2.7 Agreements. Section 2.7 of the Disclosure Schedule identifies
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each of the following agreements, contracts, documents and other items (whether
written or oral) as to which the Company is a party or otherwise is bound (and
all such contracts, or summaries thereof, have been made available to the
Purchaser): (i) all documents relating to indebtedness for money borrowed or
collateral therefor, including guarantees; (ii) all agreements or plans relating
to employment, compensation of or benefits for officers or employees of the
Company; (iii) all contracts for the purchase of materials, supplies, services,
merchandise or equipment involving consideration of more than $2,000 or
involving purchases in excess of normal operating requirements; (iv) any
contract, agreement, or instrument not entered into in the ordinary course of
the business of the Company on a basis consistent with past practice; (v) any
contract containing restrictions on the Company's operations or its ability to
compete in any geographic region or in any line of business; (vi) any lease of
real property and all personal property leases calling for annual lease payments
in excess of $2,000; and (vii) each and every other contract which is material
to the financial condition, earnings, operation or business of the Company.
Each of the contracts and agreements so listed (collectively, the "Contracts")
is a valid and existing contract or agreement in full force and effect and there
exists no default thereunder by the Company. None of the Contracts will be
violated or breached and no default or right of
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termination or modification shall arise thereunder as a result of the
consummation of the transactions contemplated by this Agreement.
2.8 Property. Section 2.8 of the Disclosure Schedule sets forth a
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schedule (the "Property Schedule") of (i) all real property owned or leased by
the Company (the "Real Property"), (ii) all individual items of tangible
personal property and assets (other than inventory) of the Company having a fair
market value in excess of $2,000, and (iii) all patents, trademarks, trade
names, service marks, trade secrets, copyrights, franchise rights or
applications therefor which are held, used, prepared in connection with or
otherwise related to the conduct of the business of the Company. Except as set
forth in the Property Schedule, the Company has good and marketable title to all
of such property and assets owned by it, free of any pledge, mortgage, lien,
lease, security agreement, encumbrance, charge or claim of any nature
whatsoever. The machinery and equipment of the Company are, in all material
respects, in good operating condition and repair, ordinary wear and tear
excepted. To the Company's knowledge, the Company is not infringing on any
patent, trademark, trade name, service xxxx, trade secret or copyright of
another entity and has received no notice or claim of any such infringement.
2.9 Legal Proceedings, Etc. Except as set forth in Section 2.9 of
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the Disclosure Schedule, there are no legal, administrative, arbitration, or
other proceedings or governmental investigations pending or, to the best of the
Company's and the Stockholders's knowledge, threatened against the Company, the
Stockholders or the respective properties or assets of the Company and the
Stockholders.
2.10 Compliance; Licenses. The Company has at all times within the
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past three years operated and used its assets in material compliance with, and
currently is not in violation of, and has obtained all material licenses and
permits required by, any law, rule or regulation. Section 2.10 of the
Disclosure Schedule contains a true and complete list of all material licenses,
permits, approvals, franchises and other authorizations as are necessary in
order to enable the Company to own and conduct its business.
2.11 Bank Accounts, etc. Section 2.11 of the Disclosure Schedule
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sets forth a true and complete list of all bank accounts, safe deposit boxes and
lock boxes of the Company including, with respect to each such account and lock
box, identification of all authorized signatories.
2.12 Insurance. Section 2.12 of the Disclosure Schedule sets forth a
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summary of all general liability, product liability, fire, casualty, motor
vehicle and other insurance currently maintained by or on behalf of the Company.
All requirements and provisions thereof are being complied with. True and
correct copies of all insurance policies relating to such coverage have been
provided by the Company to the Purchaser. No notice of cancellation has been
given to or received by the Company with respect to any of its insurance
policies, and no such policies are subject to any retroactive rate or audit
adjustments or coinsurance arrangements.
2.13 Employee Matters. Except as set forth in Section 2.13 of the
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Disclosure Schedule, the Company does not maintain, sponsor or contribute to any
plans in effect for pension, profit-sharing, deferred compensation, severance
pay, bonuses, stock options, stock purchases, or any other retirement or
deferred benefit, or for any health, accident or other welfare plan, or any
other employee or retired employee benefits or incentive plan, program,
contract, understanding or arrangement in which any employee, former employee,
retired employee, or beneficiary of any of these, of the Company is entitled to
participate. The plans, programs, contracts, understandings and arrangements
listed on the Disclosure Schedule pursuant to this Section 2.13 are hereinafter
referred to as the "Employee Plans." The Company has supplied the Purchaser
with complete and accurate copies of each such Employee Plan. Each Employee
Plan has been operated according to its terms in compliance with all applicable
laws.
2.14 Recent Operations; Employee Matters. Since December 31, 1996,
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(i) the Company has operated its business substantially as it was operated
immediately prior to said date and only in the ordinary course, and the Company
and the Stockholders have used their best efforts to preserve intact the
Company's business relationships, (ii) there have been no bonuses paid to or
increases in the compensation of officers or employees, except
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as set forth in Section 2.14(i) of the Disclosure Schedule, and (iii) except as
set forth in Section 2.14(iii) of the Disclosure Schedule, the Company has not
declared or paid any dividend or made any other distribution with respect to its
capital stock.
2.15 Stockholders Distributions. No dividends or distributions have
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been declared and/or paid to the Stockholders (whether in cash or other assets)
after December 31, 1996 through the date hereof (the "1997 Period").
2.16 Environmental Matters. No storage tanks, underground or
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otherwise, are now located on any properties occupied by the Company. The
Company has complied in all material respects with all environmental laws
relating to its operations or properties occupied by it. There are no asbestos
containing materials located on properties occupied by the Company. The Company
has not received any notice, demand, suit or information request pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or any comparable state law, nor does it have knowledge of any other party's
receipt of same relating to any properties occupied by the Company.
2.17 Disclosure. The Stockholders have disclosed to the Purchaser
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all facts material to the assets, business, operations, financial condition and
prospects of the Company. All agreements, schedules, exhibits, documents,
certificates, reports or statements furnished or to be furnished to the
Purchaser by or on behalf of the Company in connection with this Agreement or
the transactions contemplated hereby are true, complete and accurate in all
material respects, and no such items contain any untrue statement of a material
fact or omit a material fact necessary in order to make the statements contained
herein and therein not misleading.
2.18 No Conflict With Other Documents. Neither the execution and
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delivery of this Agreement, nor the carrying out of any of the transactions
contemplated hereby, will result in any violation, termination or modification
of, or be in conflict with, the Company's Articles of Incorporation or By-Laws,
any terms of any contract, instrument or other agreement to which the Company or
any Stockholder is a party or by which it or any of its properties is bound or
affected, or any law, rule, regulation, license, permit, judgment, decree or
order applicable to the Company or Stockholder or by which any of its properties
or assets are bound or affected, or result in any breach of or constitute a
default (or with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation, or result in the creation of any lien, charge or encumbrance upon
any of its properties or assets, except where such event or occurrence would
not, singly or in the aggregate, have a material adverse effect on the Company.
2.19 Brokers and Advisors. Neither the Company nor any of the
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Stockholders have taken any action which would give rise to a valid claim
against any party hereto for a brokerage commission, finder's fee, counseling or
advisory fee, or like payment.
2.20 Investment Intent. It is understood that the shares of
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Purchaser Common Stock to be delivered to the Stockholders pursuant to this
Agreement are not being registered, for purposes of the transactions hereunder,
under the Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws, and the shares are being delivered without registration in
reliance upon an exemption from the registration requirements of the Securities
Act or any state securities laws. The Stockholders are acquiring the Purchaser
Common Stock hereunder only for their own respective accounts and not with any
intention of making, or with a view to, or for sale in connection with, any
distribution thereof within the meaning of the Securities Act unless such shares
first are registered under the Securities Act.
In connection with the foregoing, each of the Stockholders hereby
represents and warrants that:
(a) such Stockholder has reviewed, discussed and evaluated the
information delivered under Section 1.2 and has had the opportunity to ask
questions of, and receive answers from, executive officers of the
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Purchaser concerning the terms and conditions of this Agreement and to obtain
any additional information which such Stockholders considered necessary to
verify the accuracy of the information delivered under Section 1.2;
(b) such Stockholder understands that she must bear the economic
risks of the investment in Purchaser Common Stock to be made hereunder for an
indefinite period of time because such stock has not been registered under the
Securities Act and, therefore, may not be sold until such stock subsequently is
registered under the Securities Act or an exemption from registration is
available; and
(c) such Stockholder has sufficient knowledge and experience in
financial and business matters to enable such Stockholder to be capable of
evaluating the merits and the risks of the exchange of the Company Common Stock
for the Purchaser Common Stock contemplated by this Agreement and such
Stockholder's prospective investment in the Purchaser.
2.21 Legends. It is understood and agreed that, to implement the
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requirements of the Securities Act and state securities laws and evidence the
restrictions upon transfer contained in this Agreement, the Purchaser will cause
a legend to be conspicuously noted on the certificates representing the
Purchaser Common Stock deliverable hereunder, and that the Purchaser will issue
stop transfer instructions to its transfer agent, to the effect that such stock
has not been registered under the Securities Act and that no transfer may take
place except as permitted by Section 11 of this Agreement and after delivery of
an opinion of Purchaser's counsel to the effect that registration thereof for
the purpose of transfer is not required under the Securities Act or that the
stock proposed to be transferred has been effectively registered for that
purpose under the Securities Act.
2.22 No Agreements with Respect to Purchaser Common Stock. Except
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for this Agreement, none of the Stockholders have entered into any agreement or
understanding with anyone for the sale, at Stockholders' option or otherwise, of
any of the Purchaser Common Stock to be delivered hereunder to Stockholders at
the Closing.
3. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Stockholders
that, except as otherwise consented to in writing by the Stockholders after the
date of this Agreement:
3.1 Stock Reservation. Between the date hereof and the Closing Date,
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the Purchaser will keep available and reserve a sufficient number of shares of
Purchaser Common Stock for issuance and delivery to the Stockholders as
contemplated in this Agreement.
3.2 Cause Conditions to be Satisfied. The Purchaser will use its
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best efforts to cause all of the conditions described in Sections 7 of this
Agreement to be satisfied (to the extent such matters reasonably are within its
control).
3.3 Registration Statement on Form S-3. The Purchaser will use its
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best efforts to meet the requirements for eligibility set forth in paragraph A.
of the General Instructions to Form S-3, as promulgated by the U.S. Securities
and Exchange Commission in fulfilling its obligations under Section 11 hereof.
3.4 Tax-Free Reorganization. The Purchaser recognizes that the
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Stockholders desire to treat the sale of their shares as a tax-free
reorganization under Section 368(a)(1)(A) of the Code and will use its best
efforts to cooperate with the Stockholders in this regard.
4. COVENANTS OF THE STOCKHOLDERS. The Stockholders severally, but not
jointly, covenant to the Purchaser that, except as otherwise consented to in
writing by the Purchaser after the date of this Agreement:
4.1 Conduct of Business. After the date hereof and through the date
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of the Closing, with respect to the Company (a) its business will be conducted
only in the ordinary course; (b) it will terminate each of its Employee Plans
and will not enter into, adopt or amend any employee benefit plan, agreement or
arrangement, enter
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into or amend any employment contracts, or increase the salaries or compensation
of its officers or employees; (c) it shall repay in full all debt outstanding on
the date hereof except for those balances [should not exceed $350,000] owed to
the holders of the Company's notes as shown in Section 4.1(c) of the Disclosure
Schedule, and it shall not incur any additional liability for borrowed money, or
encumber any of its assets; (d) all outstanding loans payable by the Company to
any Stockholders or receivable by the Company from any Stockholders or any
employee shall be repaid in full by the appropriate party except for the note
payable to Xxxxxx Xxxx in the principal amount of $105,000; (e) its current
assets at all times will be greater than its current liabilities by at least
$40,000 before adjustments for deferred revenue made in converting the Company's
financial statements from cash to accrual basis; (f) all trade payables and
liabilities and obligations payable in installments shall be current and paid
with the exception of those accounts shown in Section 4.1(e) of the Disclosure
Schedule; (g) it will use its best efforts to preserve its business organization
intact, to keep available the service of its officers and employees and to
preserve the goodwill of suppliers, customers and others doing business with it;
(h) it will not enter into any agreement for the purchase, sale or other
disposition, or purchase, sell or dispose of, any equipment, supplies,
inventory, investments or other assets (other than sales of inventory and
purchases of materials and supplies in the ordinary course of business and in
accordance with past practices); (i) it will not compromise or write off any
material account receivable other than by collection of the full recorded amount
thereof; (j) no change shall be made in its Charter or By-Laws; (k) no change
shall be made in the number of shares or terms of its authorized, issued or
outstanding capital stock, nor shall it enter into or grant any options, calls,
contracts or commitments of any character relating to any issued or unissued
capital stock; and (l) no dividend or other distribution or payment shall be
declared or paid in respect of its capital stock, and (m) no bonus or additional
compensation in excess of normal salary shall be paid to or declared for the
benefit of any of the Stockholders.
4.2 Pre-Tax Income of the Company. The Company's Pre-Tax Income,
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adjusted from cash to accrual basis and before adjustments for deferred
revenues, as reflected in the Audited Financial Statements for the Company for
the seven months ending July 31, 1997 will be equal to or greater than
$150,000. "Pre-Tax Income" means the Company's EBIT minus interest, taxes and
any distributions or dividends to the Stockholders.
4.3 Consents. The Stockholders agree to take all necessary corporate
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or other action and to use their best efforts to obtain all consents and
approvals required for consummation of the transactions contemplated by this
Agreement.
4.4 Reviewed Financial Statements. The Stockholders will cause the
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Company to deliver to Purchaser the Company's reviewed financial statements
for the two month period of August - September 1997 as soon as practicable
after the execution of this Agreement.
4.5 Cause Conditions to Be Satisfied. The Stockholders will use
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their best efforts to cause all of the conditions described in Section 7 of this
Agreement to be satisfied to the extent such matters are reasonably within their
control.
4.6 1998 Net Earnings of the Company's Operations. The net
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earnings of the PMZ Retail Group Sylvan Learning Centers shall be at least
$600,000 in calendar year 1998. The PMZ Retail Group Sylvan Learning Centers
shall include those centers open as of the date of the Closing, to wit:
Garden Grove Long Beach Huntington Beach
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Laguna Hills Tustin San Xxxx
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Capistrano
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Irvine Newport Beach Xxxxxx
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plus any additional retail Sylvan Learning Centers that Purchaser shall
establish in the territory covered by Sylvan License Agreements 543 and 595 as
of the Closing. Net earnings shall be calculated on the accrual method, center
by center, in accordance with generally accepted accounting principles,
consistently applied from 1997 to 1998, and shall mean (whether any center has,
in fact, a profit or a loss) the yearly revenues attributable to all operations
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conducted in those centers less the sum of 1) all operating expenses directly
incurred in operating the centers 2) advertising expenses incurred by Purchaser
and allocated to the centers for local, Los Angeles co-op and national
advertising contributions, 3) depreciation and amortization charges against
capitalized items in the centers and intangibles on the books for the centers
and 4) direct internal administrative overhead expense incurred by Purchaser for
supervision of the corporate retail centers in accordance with Purchaser's
previous practices in charging such expenses to Purchaser's retail Sylvan
Learning centers (i.e. the X. Xxxxxxx and staff overhead account). Revenues
attributable to any STC operations shall be calculated as though the STC in the
center had been operated as an STC Agent-operated center. None of Purchaser's
revenues or expenses attributable to Mindsurf operations or public/non-public
school contract services shall be taken into account in determining PMZ Retail
Group net earnings. The $600,000 net earnings target shall be subject to
ratable adjustment (upwards or downwards) in the event any of the Learning
Centers listed above is sold prior to December 31, 1998 by taking into account
that center's contribution to calendar year 1997 net earnings (stated on an
accrual basis) for all of the centers combined. By way of example, if a center
contributed 20% of the total centers' net earnings for 1997, and is sold January
1, 1998, then the $600,000 net earnings target will be reduced by $120,000 (20%
of $600,000). If a center had a loss in 1997 equal to -5% of the total centers'
net earnings for 1997, and is sold January 1, 1998, the $600,000 net earnings
target will be increased by $30,000 (5% of $600,000).
5. SALE OF THE COMPANY COMMON STOCK AND CONSIDERATION. The Stockholders
agree to sell, and the Purchaser agrees to buy, at the Closing, the
Stockholders' 352,495 shares of Company Common Stock, and for and in
consideration of such sale and transfer, Purchaser agrees to issue and deliver
to Stockholders, ratably in accordance with their respective ownership of the
352,495 shares, that number of shares of Purchaser Common Stock having a Fair
Market Value of $641,541.
5.1 Exchange of Shares. In order to effect the purchase and sale,
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(i) the Stockholders will deliver to the Purchaser at the Closing, certificates
in due and proper form representing the 352,495 shares of Company Common Stock
owned by such Stockholders, duly endorsed or accompanied by duly executed stock
powers, with signatures notarized or guaranteed by a commercial bank or a
member of the National Association of Securities Dealers, Inc., and (ii) the
Purchaser shall deliver to the Stockholders certificates in due and proper form,
representing the number of shares of Purchaser Common Stock to which each such
Stockholder is entitled, less shares retained by Seller to secure the
Stockholders' indemnity obligations. Each share of Purchaser Common Stock
issued pursuant to this Agreement shall be fully paid and non-assessable. For
purposes of the foregoing, the Fair Market Value of the Purchaser Common Stock
shall equal the average of the closing prices reported in the Wall Street
Journal for the fifteen (15) trading days ended and including September 30,
1997.
5.2 Retainage of Shares by Seller. Of the total Purchaser Common
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Stock to be issued to each of the Stockholders, one-fourth (1/4/th/) of same
shall be retained by Purchaser through the completion of the audited financial
results for 1998 (March 1, 1999) as security for each Stockholder's indemnity
obligation under Section 9.1 which arise or are discovered on or before March 1,
1999. To the extent not required to secure any claim discovered or asserted but
remaining unresolved as of March 1, 1999, all of said shares shall be
surrendered to the respective owner-Stockholder immediately folling said date.
Five percent (5%) of the shares shall be released by Sylvan on or before March
1, 19989 if the audited financial statement for the PMZ Retail Group Sylvan
Learning Centers reflects that the ending balance of deferred tuition revenues
as of 12/31/97 is less than $350,000.
6. CLOSING. The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place at the offices of the Company in Irvine,
California beginning at 1:00 p.m. on October 2, 1997, or at such other time and
place as may be agreed upon in writing by the Purchaser and the Company (the
"Closing Date"), but shall be effective as of the beginning of business on
October 1, 1997 (the "Effective Date").
7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. Unless waived by the
Purchaser in writing in its sole discretion, all obligations of the Purchaser
under this Agreement are subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
8
7.1 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Company or the Purchaser, or their respective officers or
directors, or either of the Stockholders, shall be threatened or pending before
any court or governmental agency in which it will be, or it is, sought to
restrain or prohibit any of the transactions contemplated by this Agreement or
to obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.
7.2 Consents and Actions; Contracts. All requisite consents of any
-------------------------------
third parties and other actions which the Stockholders have covenanted to use
their best efforts to obtain and take under Section 4.5 hereof shall have been
obtained and completed. All material contracts and agreements of the Company,
including, without limitation, all contracts and agreements listed on Section
2.7 of the Disclosure Schedule, shall be in full force and effect and shall not
be affected by the consummation of the transactions contemplated hereby.
7.3 Other Evidence. The Purchaser shall have received from the
--------------
Company and the Stockholders such further certificates and documents evidencing
due action in accordance with this Agreement,including certified copies of
proceedings of the Board of Directors and Stockholders of the Company, as the
Purchaser reasonably shall request.
7.4 Resignation of Stockholders. Each and every one of the
---------------------------
Stockholders shall have resigned from any and all positions with the Company as
director, officer or employee effective as of immediately prior to the Closing.
7.5 Employment Contract. Xxxxxx Xxxx and Purchaser shall enter into
-------------------
the Employment Contract in the form shown as Exhibit B attached hereto.
7.6 Covenants, Representatives and Warranties True. As of the
----------------------------------------------
Closing, all of the Covenants, Representations and Warranties of the
Stockholders shall be true and correct.
8. CONDITIONS TO THE STOCKHOLDERS' OBLIGATIONS. Unless waived by the
Stockholders, all obligations of the Stockholders under this Agreement are
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions:
8.1 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Company or the Purchaser, or their respective officers or
directors, or any of the Stockholders, shall be threatened or pending before any
court or governmental agency in which it will be, or it is, sought to restrain
or prohibit or to obtain damages or other relief in connection with this
Agreement or the transactions contemplated hereby.
8.2 Consents and Actions. All requisite consents of any third
--------------------
parties and other actions which the Purchaser has covenanted to use its best
efforts to obtain and take under Section 3 of this Agreement shall have been
obtained and completed.
8.3 Other Evidence. The Stockholders shall have received from the
--------------
Purchaser such further certificates and documents evidencing due action in
accordance with this Agreement, including certified copies of proceedings of the
Board of Directors and Stockholders of the Purchaser, as the Company and the
Stockholders reasonably shall request.
9. INDEMNIFICATION.
9.1. Indemnification by the Stockholders. The Stockholders hereby
-----------------------------------
covenant and agree severally, but not jointly, to indemnify and hold harmless
the Purchaser and its respective successors and assigns, at all times from and
after the date of Closing against and in respect of the following:
9
(i) any liability, loss, damage, cost or expense resulting
from any misrepresentation, breach of representation or warranty or breach
or non-fulfillment of any agreement or covenant on the part of the
Stockholders under this Agreement, or from any inaccuracy or
misrepresentation in or omission from any certificate or other instrument
or document furnished or to be furnished by the Company or the Stockholders
hereunder;
(ii) To the extent not accrued or reflected in the Financial
Statements covering the period prior to the Closing, any liabilities or
obligations of the Company or the Stockholders arising from operations of
the Company prior to the Closing, including but not limited to federal,
state or local income tax or, any personal property, FICA, withholding,
excise, unemployment, sales or franchise taxes.
(iii) all claims, actions, suits, proceedings, demands,
assessments, judgments, costs, reasonable attorneys' fees and expenses of
any nature incident to any of the matters indemnified against pursuant to
this Section 9.1, including, without limitation, all such costs and
expenses incurred in the defense thereof or in the enforcement of any
rights of the Purchaser hereunder.
Each stockholder's liability under this Section 9.1 and Section 11.3 shall
be limited to their respective percentage shown on Schedule 1.2 hereof, and in
no event shall any individual stockholder's liability exceed the result of
multiplying such percentage times $903,000.
9.2. Notice and Defense. The Purchaser shall notify the
------------------
Stockholders of any asserted liability, damage, loss or expense claimed to give
rise to indemnification hereunder and the Stockholders shall have an initial
right to defend, compromise and settle such matter provided that the Purchaser
is fully protected from any liability, loss damage, cost or expense in
connection therewith. Within ten (10 days of receipt of such notice,
Stockholders shall respond in writing as to whether Stockholders will engage
counsel at Stockholders' expense to defend the claim. If Stockholders do not
respond, or affirmatively decline to defend the claim or disputes its obligation
to indemnify, the Purchaser shall then have, at its election, the right to
compromise or defend any such matter at the Stockholders' sole cost and expense
through counsel chosen by the Purchaser and reasonably acceptable to the
Stockholders; provided, however, that any such compromise or defense shall be
conducted in a manner which is reasonable and the Stockholders shall in all
events have a right to veto any such compromise or defense which might increase
the potential liability of, or create a new liability for, the Stockholders
(other than under Section 9.1). Each party agrees in all cases to cooperate with
the defending party and its or his counsel in the compromise of or defending of
any such liabilities or claims. In addition, the non defending party shall at
all times be entitled to monitor such defense through the appointment, at its or
his own cost and expense, of advisory counsel of its own choosing. As to any
claim paid by the Purchaser for which any of the Stockholders has indemnity
liability under this Section 9, and which the Stockholder does not reimburse
Purchaser within five (5) days following demand for reimbursement by Purchaser,
Purchaser may (if it is then holding any of such Stockholder's Purchaser Common
Stock) offset the amount of the Stockholder's liability on the claim paid
against the shares of such Purchaser Common Stock retained by Purchaser,
canceling that number of shares that then have a fair market value equal to the
amount paid (for purposes of this section, fair market value shall mean the
closing price of the stock as reported by the Wall Street Journal for the
trading date immediately preceding the day reimbursement from the Stockholder is
due). For purposes of determining the stockholder's liability for a shortfall in
1998 net earnings under the covenant of Section 4.6, each stockholder's
liability shall equal the product of multiplying their respective percentage
interest shown in Schedule 1.2 times 35/60ths times the total amount by which
$600,000 exceeds actual net earnings, but in no event shall any stockholders'
liability pursuant to Section 4.6 exceed the value of the shares held by
Purchaser at the time the liability is determined.
9.3. Indemnification by the Purchaser. From and after the
--------------------------------
Closing Date, the Purchaser hereby covenants and agrees to indemnify and hold
harmless the Stockholders against and in respect of the following:
(i) any liability, loss, damage, cost or expense resulting
from any misrepresentation, breach of warranty or non-fulfillment of any
agreement or covenant on the part of Purchaser under this Agreement, or
10
from any misrepresentation in or omission from any certificate or other
instrument or document furnished or to be furnished by the Purchaser hereunder;
and
(ii) Any liabilities or obligations of the Company arising
from operations of the Company after the Closing, including but not limited to
federal, state or local income tax or, any personal property, FICA, withholding,
excise, unemployment, sales or franchise taxes.
(iii) all claims, actions, suits, proceedings, demands,
assessments, judgments, costs, reasonable attorneys' fees and expenses of any
nature incident to any of the matters indemnified against pursuant to this
Section 9.3, including without limitation, all such costs and expenses incurred
in the defense thereof or in the enforcement of any rights of the Stockholders
hereunder.
The Stockholders shall notify the Purchaser of any asserted liability,
damage, loss or expense claimed to give rise to indemnification hereunder and
thereafter the Purchaser shall have the right to defend, compromise and settle
such matter provided that the Stockholders are fully protected from any
liability, loss, damage, cost or expense in connection therewith.
10. SURVIVAL; LIMITATIONS.
10.1 Survival. The representations, warranties and agreements made
--------
by the parties in this Agreement and in any other certificates and documents
delivered in connection herewith, including the indemnification obligations of
the Stockholders and Purchaser set forth in Section 9 hereof, shall survive the
Closing under this Agreement regardless of any investigation made by the party
making claim hereunder, except that, subject to the provisions of the next
sentence, neither the Purchaser, on the one hand, nor the Stockholders, on the
other, shall have any liability with respect to any matter if notice of a claim
has not been provided on or prior to December 31, 1998. Notwithstanding the
foregoing, (i) any indemnification obligations of the Stockholders relating to
federal, state or local tax matters or environmental matters of any sort shall
continue in full force and effect without limitation until expiration of the
statute of limitations applicable to such tax or environmental matters, (ii) the
representation and warranty contained in Sections 2.1, 2.2, or, 2.3 and any
indemnification obligations of the Stockholders in connection therewith shall
continue in full force and effect without any limitation, (iii) the liability
under Section 4.6, and (iv) any claims, actions or suits the Purchaser, on the
one hand, or the Company or the Stockholders, on the other hand, may have which
arises from any fraud or willful misconduct on the part of the Stockholders or
the Company, or any representative of either, on the one hand, and the Purchaser
or any representative of it, on the other hand, shall continue in full force and
effect without limitation until expiration of the statute of limitations
applicable thereto.
10.2 Limitations. No indemnified party shall be entitled to
-----------
indemnification hereunder until such time as a single loss or an aggregate of
several losses equals Nine Thousand Dollars ($9,000), at which time such
indemnified party shall be entitled to indemnification for all losses sustained,
incurred, paid or required to be paid by such indemnified party in excess of the
$9,000; and in no event shall any party to this Agreement be entitled to
indemnification for a single loss or an aggregate of several losses which
exceeds $903,000.
11. REGISTRATION RIGHTS.
11.1 Registration Procedures and Expenses. Purchaser shall:
------------------------------------
(a) as soon as practicable after the closing date but not later
than ninety (90) days after the closing date, prepare and file with the
Securities and Exchange Commission (the "Commission") a registration statement
on Form S-3 which meets the requirements of Rule 415 promulgated under the
Securities Act (a "Shelf Registration Statement") covering the sale by the
Stockholders from time to time of four fifths (4/5/ths/) of the shares of the
Purchaser Common Stock received by the Stockholders under this Agreement.
Purchaser may extend its obligation to file a registration statement only if
Purchaser advises the Stockholders that there is a pending, but
11
unannounced transaction or development which Purchaser determines is not then
appropriate for disclosure, and that registration of the Purchaser Common Stock
would require such disclosure.
(b) use its best efforts, subject to receipt of necessary
information from the Stockholders, to cause each of the Shelf Registration
Statements to become effective;
(c) prepare and file with the Commission such amendments and
supplements to the Shelf Registration Statements and the prospectus used in
connection therewith as may be necessary to keep the Shelf Registration
Statements effective until the earlier of the date on which the Purchaser Common
Stock registered by such Shelf Registration Statement has been sold, or one year
from the date of the initial filing thereof;
(d) during the period referred to in (c) above, prepare and
promptly file with the Commission, and promptly notify the Stockholders of the
filing of, such amendment or supplement to each such Shelf Registration
Statement and the prospectus as may be necessary to correct any statements or
omissions if, at any time when a prospectus relating to the Purchaser Common
Stock is required to be delivered under the Securities Act, any event has
occurred the result of which is that any such prospectus then in effect would
include or incorporate an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading in
light of the circumstances in which they were made;
(e) advise the Stockholders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of any of such Shelf Registration
Statements or the initiation or threatening of any proceeding for that purpose
and promptly use its diligent best efforts to prevent the issuance of any stop
order and to obtain its withdrawal if such stop order should be issued;
(f) furnish to the Stockholders with respect to the Purchaser
Common Stock registered under any of the Shelf Registration Statements such
number of copies of prospectuses and preliminary prospectuses in conformity with
the requirements of the Securities Act and such other documents as the
Stockholders may reasonably request (but in no event more than 100 copies), in
order to facilitate the public sale or other disposition of all or any of the
registered Purchaser Common Stock by the Stockholders; provided, however, that
-------- -------
the obligation of Purchaser to deliver copies of prospectuses or preliminary
prospectuses to the Stockholders shall be subject to the receipt by Purchaser of
reasonable assurances from the Stockholders that the Stockholders will comply
with the applicable provisions of the Securities Act and of such other
securities or blue sky laws as may be applicable in connection with any use of
such prospectuses or preliminary prospectuses;
(g) file documents required of Purchaser for normal blue sky
clearance in states reasonably specified in writing by the Stockholders,
provided, however, that Purchaser shall not be required to qualify to do
business or consent to service of process in any jurisdiction in which it is not
now so qualified or has not so consented; and
(h) bear all expenses in connection with the procedures in
paragraphs (a) through (g) of this Section 11.1 and the registration of the
Purchaser Common Stock pursuant to each of the Shelf Registration Statements,
other than fees and expenses, if any, of counsel or other advisers to the
Stockholders.
11.2 Engagement of Underwriters. The parties hereto agree that the
--------------------------
Purchaser shall have no obligation to (i) conduct, arrange or coordinate any
distribution or sales activities on behalf of the Stockholders with respect to
the Purchaser Common Stock other than as set forth in Section 11.1 above or (ii)
retain any underwriter(s) in connection with the registration and/or
distribution of the Purchaser Common Stock pursuant to this Section 11. The
Stockholders agrees that any underwriter(s) or counsel engaged in connection
with the registration or distribution of the Purchaser Common Stock required to
be registered pursuant to this Section 11 will be retained by and at the sole
expense of the Stockholders and agrees further that any discounts or commissions
payable to such underwriter(s)
12
shall also be an expense solely of the Stockholders. In the event the
Stockholders engages one or more underwriters pursuant to this Section 11.2, the
Stockholders shall enter into an underwriting agreement with the managing or
lead managing underwriter in the form customarily used by such underwriter with
such changes thereto as the parties thereto shall agree; and, further, shall
provide to such underwriter any documents or other information as is necessary,
in the underwriter's reasonable opinion, to facilitate the effectiveness of the
Shelf Registration Statement and the completion of the distribution of the
Purchaser Common Stock so registered.
11.3 Indemnification with respect to Shelf Registration Statements.
-------------------------------------------------------------
Purchaser hereby agrees to indemnify the Stockholders against liability arising
out of or based upon any untrue statement or alleged untrue statement of
material fact in any of the Shelf Registration Statements filed by Purchaser
pursuant hereto, or the omission or alleged omission to state or incorporated by
reference in such Shelf Registration Statements any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, other than any such statement included or incorporated by reference
in, or omitted from, such Shelf Registration Statements by Purchaser in reliance
upon and in conformity with written information furnished to Purchaser
specifically for use therein by or on behalf of the Stockholders. The
Stockholders, severally and not jointly, hereby agree to indemnify Purchaser
against liability arising out of or based upon any untrue statement or alleged
untrue statement of a material fact included or incorporated by reference in the
Shelf Registration Statements or the omission or alleged omission to state or
incorporate by reference therein any material fact required to be stated therein
or necessary in order to make the statements therein not misleading, if such
statement or omission was made by Purchaser in reliance upon and in conformity
with written information furnished to Purchaser for use or incorporation by
reference in such Shelf Registration Statements.
12. CONFIDENTIALITY. After the date hereof, the Stockholders will hold in
confidence and not reveal to any third parties any knowledge or information of a
confidential nature with respect to the business, products, know-how and methods
of operation of the Company, and will not disclose, publish or make use of the
same, provided, however, that the foregoing shall not be applicable to any
disclosure or use of confidential information or knowledge that can be
demonstrated to have (i) been publicly known prior to the date of this
Agreement, (ii) become known by publication or otherwise not due to the
unauthorized act or omission on the part of the Stockholders, or (iii) been
supplied to the Stockholders by a third party without violation of the rights of
the Company or the Purchaser or any other party. The parties agree that the
remedy at law for any breach by the Stockholders of this Section 12 shall be
inadequate and that the aggrieved party shall be entitled to injunctive relief
in addition to any other remedy.
13. EXPENSES. Each party to this Agreement shall pay all of its expenses
relating hereto, including fees and disbursements of its counsel, accountants
and financial advisors, whether or not the transactions hereunder are
consummated. It is expressly understood that the Stockholders will bear, and
will not cause the Company to pay, any legal fees or other expenses incurred in
connection with the transactions contemplated by this agreement, as well as the
cost of furnishing the audited and reviewed Company Financial Statements
referred to in Sections 2.5 and 4.4; provided, however, that in the event of any
litigation between the parties hereto relating to or arising from this
Agreement, the prevailing party in such litigation, as may be determined by the
court in its sole discretion, shall be entitled to payment by the non-prevailing
party of all reasonable attorney's fees and costs.
14. NOTICES. Except as otherwise provided herein, all notices, requests,
demands and other communications under or in connection with this Agreement
shall be in writing, and, (a) if to the Purchaser, shall be addressed to:
B. Xxx XxXxx, Chief Financial Officer
Sylvan Learning Systems, Inc.
0000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
with a copy to:
13
Xxxxxxx X. Xxxxxxxx, Xx., Esquire
Piper & Marbury
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
(b) if to the Company or the Stockholders, shall be addressed to:
Xxxxxx Xxxx
0000 Xxxxxxxx Xxxx. #000
Xxxxxx, XX 00000
with a copy to:
Xxxxxx Xxxxxxx
Xxxxxxxxxx & Xxxxxxxx, LLP
0000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
All such notices, requests, demands or communications shall be mailed
postage prepaid, certified mail, return receipt requested, or by overnight
delivery or delivered personally, and shall be sufficient and effective when
delivered to or received at the address so specified. Any party may change the
address at which it is to receive notice by like written notice to the other.
15. ENTIRE AGREEMENT. This Agreement (including the exhibits hereto and the
lists, schedules and documents delivered pursuant hereto, which are a part
hereof) is intended by the parties to and does constitute the entire agreement
of the parties with respect to the transactions contemplated by this Agreement.
This Agreement supersedes any and all prior understandings, written or oral,
between the parties, and this Agreement may be amended, modified, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the amendment, modification, waiver, discharge or
termination is sought.
16. GENERAL. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns, but nothing herein, express or implied, is
intended to or shall confer any rights, remedies or benefits upon any person
other than the parties hereto. This Agreement may not be assigned by any party
hereto. This Agreement shall be construed in accordance with and governed by the
laws of the State of Maryland.
14
IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholders have
caused this Agreement to be duly executed and their respective seals to be
hereunto affixed as of the date first above written.
WITNESS: SYLVAN LEARNING SYSTEMS, INC.
-------------------------- By:
-----------------------------------
O. Xxxxxx Xxxxx, its Vice President
Stockholders:
(Seal)
---------------------------
Xxxxxx Xxxx
(Seal)
---------------------------
Xxxxxxxx Xxxxxx
(Seal)
---------------------------
Xxxxxxx Xxxxx
(Seal)
---------------------------
Xxxxxx X. Xxxx
(Seal)
----------------------------
Xxxxxxxxx Xxxxxx
(Seal)
----------------------------
Xxxxxx X. Xxxxxxxx
(Seal)
----------------------------
Xxx X. Xxxxxxx
(Seal)
----------------------------
Xxxxxxxx XxXxxxx
15
